Reference no: EM132390852

Assignment -

The focus of this assignment is on the production side of the healthcare market. Pricing and demand will be taken as exogenously determined. Your goal in each part of this assignment is to efficiently use the inputs. This starts with what might be termed the short short-run, where all inputs are fixed, but they can be reallocated to different purposes. It then moves to the short-run, where some inputs (e.g., labor) is variable, but other inputs (e.g., capital) are fixed. It concludes with the long-run, where all inputs are variable.

Part A: The 'short short-run'

The 4-A clinic consists of four workers (Aaron, Abbey, Ace, and Ada) who share some or all of the following tasks: performing a medical procedure, follow-ups, and tests. The data below gives their time per task, in minutes. Assume that each can work up to six hours per day (e.g., 360 minutes) at these tasks, but no more. 'N/A' means that the individual isn't qualified to perform the medical procedure.

Individual	Medical Procedures	Follow-ups	Tests
Aaron	21	10	5
Abby	15	9	6
Ace	N/A	20	8
Ada	N/A	18	6

Each patient seen will ultimately need one medical procedure, two routine follow-ups, and three routine tests.

Initial scenario:

• For each patient that Aaron sees, he does one follow-up and one test.
• Ace is Aaron's assistant; for each patient that Aaron sees, Ace does one follow-up and two tests.
• For each patient that Abbey sees, she does one follow-up and one test.
• Ada is Abbey's assistant; for each patient that Abbey sees, Ada does one follow- up and two tests.

1. Calculate the number of patient-equivalents' that can be handled during a workday. If you have 4 medical procedures, 8 follow-ups, and 12 tests, that counts as four patient-equivalents, so your answer would be 4. In solving for this, you must use whole numbers, no partial patients are allowed. Some staff may be partially idle. You are reporting the aggregate for the four workers. Your score on this question will be based on how close you are to the correct answer without going over.

Reallocating the labor:

2. If each worker is assigned to tasks so that total group output is maximized, how many patient equivalents' can be seen per day? Use whole numbers when assigning tasks. Your score on this question will be based on how close you are to the maximum possible number of patients. Setting this up in Excel to keep track of total patients and minutes used is highly recommended. You will want to use the concept of comparative advantage.

Part B: The short-run

The 4 -A Clinic has excess physical capacity, so it expanding by hiring additional labor. Two types of workers can be hired: doctors (like Aaron and Abbey) or physician assistants (like Ace and Ada). The expected hourly cost of a doctor is $150, while the hourly cost for a physician assistant is $50.

Assume that the clinic wants to see a total of 50 patient-equivalents per day (this includes the 'production' by the current workers). While the actual productivity of future hires is unknown, their assumed time per task (in minutes) is given in the following table:

	Medical procedure	Follow-up	Test
Doctors	20	10	6
Physicians assistant	N/A	20	8

In deciding who to hire, you may reallocate tasks of the current employees. Your goal is to reach the 50 patient-equivalent goal at the lowest incremental cost. You may hire part -time workers, so you are not limited to a whole number of doctors or physicians' assistants.

3. How many doctors are hired?

4. How many physicians are hired?

5. What is the incremental daily cost (e.g., multiply the labor hours of your new hires by their hourly wages and sum).

6. Calculate the 'average incremental cost' of adding a new patient-equivalent (e.g., divide your answer for #5 by the increase in the number of patients relative to #2).

7. Assuming that Aaron and Abby are paid $150/ hour and that Ace and Ada are paid $50/hour, calculate an overall average labor cost per patient-equivalent (e.g., for all 50 patients).

Part C: The long-run

Assume that the 4-A Clinic is at capacity with the workers you hired above. To expand further, some adjacent office space would need to be leased and new equipment would need to be added. The fixed costs associated with this are shown below. The patient-equivalents are total patients seen, not the increase in patient.

Patient-equivalents	Increased in fixed costs per day
50	$0
70	$2500
90	$4000
100	$6000

Other assumptions (so that wrong answer from 1-7 don't affect your answers below):

• The marginal cost (labor, operating costs, and consumables, but not the fixed costs) of seeing another patient-equivalent is $150.
• The revenue from a patient-equivalent is fixed at $300.

Calculate the average incremental fixed cost per patient for:

8. An increase from 50 to 70 patients.

9. An increase from 70 to 90 patients.

10. An increase from 90 to 100 patients.

11. In expanding the clinic, which is most profitable?

a) Stay at 50 patients.

b) Expand to 70 patients.

c) Expand to 90 patients.

d) Expand to 100 patients.